1990 (5) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Exemption of capital gains under Section 54 of the IT Act, 1961.
2. Ownership duration and residential usage of the property.
3. Status of the assessee as an individual or HUF (Hindu Undivided Family).

Detailed Analysis:

1. Exemption of Capital Gains under Section 54 of the IT Act, 1961:
The primary issue was whether the assessee was entitled to exemption of capital gains under Section 54 of the IT Act, 1961. The Revenue contended that the exemption was wrongly granted by the AAC because the house was not mainly used by the assessee for residential purposes, and the assessee had not owned the property for two years before its sale.

The Tribunal upheld the AAC's decision, stating that the property was indeed used mainly for residential purposes by the assessee. The Tribunal considered the total area occupied by the assessee, including the first floor, bathrooms, latrines, and adjacent land, which collectively constituted a major portion of the property. This satisfied the requirement that the property must be "mainly used" for residential purposes.

2. Ownership Duration and Residential Usage of the Property:
The Revenue argued that the assessee did not own the property for the required two-year period before its sale, as she became the absolute owner only on 5th June 1980, and the property was sold on 26th November 1981.

The Tribunal, however, applied the principle from Section 2(42A) and the Explanation to Section 49(1) of the IT Act, which states that the period of holding by the previous owner should be included in determining the ownership period. Since the property was owned by the assessee's husband since 1969 and later inherited by the assessee, the Tribunal concluded that the ownership period exceeded two years.

Regarding the residential usage, the Tribunal accepted the assessee's claim that she lived in the house with her husband, thus fulfilling the requirement of continuous residential usage for two years. The Tribunal referenced the case of Sunitbhai Subodhbhai, where it was held that continuous use by the assessee and family members satisfies the requirement of Section 54.

3. Status of the Assessee as an Individual or HUF:
The Revenue introduced an additional ground, asserting that the assessee should be assessed as HUF rather than an individual, which would invalidate the claim under Section 54. The Tribunal rejected this ground, noting that the issue of the assessee's status was not raised before the ITO or AAC, and introducing it at the appellate stage without prior notice was procedurally improper.

The Tribunal cited decisions from the Bombay High Court and Rajasthan High Court, emphasizing that a change in the status of the assessee requires issuing fresh notices and providing the assessee an opportunity to respond, which was not done in this case.

Additionally, the Tribunal found that the property was inherited by the assessee's husband in his individual capacity under the Hindu Succession Act, 1956, and not as an HUF asset. Therefore, even on merits, the argument that the property should be assessed as HUF was dismissed.

Conclusion:
The Tribunal concluded that the AAC's order granting exemption under Section 54 was correct. The property was mainly used for residential purposes by the assessee, and the ownership period, including that of the previous owner, exceeded two years. The appeal by the Revenue was dismissed, affirming the assessee's entitlement to the capital gains exemption.

Result:
The appeal was dismissed.